Sage’s chief executive steps down after shift to cloud falters

The chief executive of Sage, the UK’s largest listed technology business, has stood down because of the accounting software company’s struggle to move its customers on to cloud-based products.

The company's decision to remove Stephen Kelly prompted shares to fall 6.6 per cent to 602.4p in morning trade. The board, led by chairman Donald Brydon, decided the company needed a new leader given the group's poor performance this year.

The London-listed company, which is in the process of increasing its Irish workforce to 600 people, is still seen, primarily, as a firm that provides accounting and payroll software for SMEs.

Mr Kelly will stand down immediately from his executive role, with Steve Hare, chief financial officer, moving to chief operating officer to run the business until a full-time replacement chief executive is hired. It is the first time in Sage's history that the company has dispensed with its chief executive.

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Mr Kelly joined Sage four years ago from the civil service, where he was chief operating officer of the Cabinet Office. The hire was seen as a coup, with Mr Kelly expected to shake up the software company, which had been tightly run by a group of Sage veterans for 30 years, and push its growth toward double-digit rates.

The stock surged through the 800p mark last year as it made its largest ever acquisition - of the US company Intacct for $850 million - and raised its growth outlook.

Yet the business, which supplies thousands of small and medium-sized companies with book-keeping software, has struggled in 2018 due to the transition of its customer base to the Sage Business Cloud and away from its traditional licence model.

It warned of a slow start to the year in January and the shares fell 20 per cent in April after it cut its full-year guidance due to what it said were “execution” issues in its sales force. Mr Kelly said in May he had replaced dozens of managers but the stock did not recover. He said the company had grown from a “standing start and has driven total shareholder return for Sage of over twice that of the FTSE 100”.

Mr Brydon praised the “heavy lifting” that the departing chief executive had done to improve the company’s performance.

George O’Connor, an analyst with Stifel, said that it was reassuring that Sage had not cut its guidance again and argued that Mr Kelly’s departure was on the cards.

“We recall a recent conversation with a noted sector headhunter (let’s be honest, there was always a risk that Mr Kelly would move). Our view was on the difficulties in replacing Mr Kelly - [the headhunter] suggested that it was not impossible. After all, Sage is the biggest fish in the UK, and its cloud (revenue) makes it a big fish globally in the cloud world,” he said.

For Sage, it is the second time it has struggled with a move to the cloud after it botched its launch of new online products a decade ago and opened the door for start-up rivals, including Xero, to target newly launched small businesses with accounting and payment software products.- Copyright The Financial Times Limited 2018